Jessica Lerner

The muni market saw $507.585 billion of debt issued in 2024, up 31.8% from $385.061 in 2023. This surpasses the previous record of $484.601 billion in 2020 by more than $20 billion, per LSEG data.

Both IG and HY indices will likely end this year richer versus USTs and their benchmarks, "leaving very little cushion to absorb rate volatility," said Barclays strategist Mikhail Foux.

High-yield funds saw outflows of $413.6 million compared to the previous week's outflows of $71 million.

In the remaining days of this year, "taxable rates continue to be pressured but munis are finding a stable, even supportive, bidside," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.

Munis "continued their slide" last week as yields rose an average of 23 basis points across the curve as the Fed Chairman Jerome Powell signaled the Fed will take a "more cautious approach" on interest rate cuts next year, said Jason Wong, vice president of municipals at AmeriVet Securities.

"Munis are grappling with a storm of uncertainty," said James Pruskowski, chief investment officer at 16Rock Asset Management.

It's hard enough convincing local governments to spend money on cyber insurance that covers ransomware attacks, said Omid Rahmani, public finance cybersecurity lead at Fitch Ratings. The new and very specific threat of a hacked financing process, is "absolutely" underappreciated by the public finance industry.

As the market prepares for 2025, there's a lot of uncertainty around what the new administration will mean for the macroeconomic environment and interest rates, the latter of which may be impacted by policy around the deficit, said Steve Shutz, portfolio manager and director of tax-exempt fixed income at Brown Advisory.

With investors now anticipating Wednesday's expected rate cut may be the last one for a while, "an overall bullish paradigm has been seriously weakened," noted Matt Fabian, a partner at Municipal Market Analytics, Inc.

As investors start shutting down for the year, there may be some mixed sessions ahead "especially for any accounts that find themselves as forced sellers," Birch Creek Capital said.

The face amount of munis outstanding rose to $4.171 trillion, a 0.8% increase from Q2 2024 and 2.9% from Q3 2023, according to the latest Fed data.

Muni mutual funds saw outflows after 23 weeks of inflows as LSEG Lipper reported investors pulled $316.2 million for the week ending Dec. 11. High-yield municipal bond funds, though, saw inflows of $192.3 million.

Most on the Street expect issuance to come in around $500 billion, but a few think volume will be much higher, primarily because of potential changes to the tax exemption. Most firms expect refunding volumes to also grow in 2025.

Municipal investors are more focused on the final new-issues coming down the pike and repositioning books as 2024 heads to a close. ICI reported another week of inflows into municipal bond mutual funds.

"With strong demand, rate cuts and favorable technicals, the muni market — outside of an unexpected shock — is set up to perform well over the next couple of months," said Daryl Clements, a municipal portfolio manager at AllianceBernstein.

High-yield municipal bond funds saw inflows of $534.1 million compared to $300.6 million compared the previous week, per LSEG Lipper data.

"This matter is now under active investigation by federal authorities and impacted financial institutions, who are coordinating with the White Lake Township Police Department," said Daniel Keller, chief of police, in a statement.

Technicals could "break down" if there is a potential decline in risk assets or rising unemployment, particularly in white-collar jobs, said Jeff Timlin, a managing partner at Sage Advisory.

Muni investors hope "any move toward higher yields is steady, even dignified, such that it doesn't catalyze an outflow cycle that would countervail year-to-date total returns just before we close out the year," said Vikram Rai, head of municipal strategy at Wells Fargo.

Munis ended November in the black with the asset class seeing gains of 1.73% for the month, pushing year-to-date returns to 2.55%.